* Activist says three Shi'ites killed by police stray bullets
* Interior Ministry denies reports, says two dead and two injured
* Tension high in province ahead of Shi'ite holiday (Adds government denial, details)
DUBAI, Nov 22 (Reuters) - Three Shi'ite Muslims have been killed accidentally in eastern Saudi Arabia by stray bullets fired by police, a Saudi activist said on Tuesday, but the Interior Ministry denied the report.
Tawfiq al-Saif, an activist, told Reuters the government was sending a team to the town of al-Qatif to investigate the deaths, which have angered Shi'ites in the oil-producing Eastern Province ahead of their Ashura holiday.
The Interior Ministry, in a statement emailed later on Tuesday, said the report of the deaths was "not accurate." It said one person was found dead after shooting at a police checkpoint on Sunday night, and another person had died in hospital after being taken there on Monday night by "unknown people".
The ministry did not say whether security forces had opened fire in the Sunday incident and said the Eastern Province police were investigating both events.
Saudi Arabia has escaped the popular protests that have swept three Arab heads of state from power this year, reacting to the unrest in the region by promising to spend some ${esc.dollar}130 billion on housing and other social benefits for its citizens.
But small-scale protests have taken place in the Eastern Province, where most of the Sunni-run kingdom's Shi'ite Muslim minority live. Activists said authorities responded by deploying armed riot police who had set up checkpoints.
The Eastern Province is the centre of Saudi Arabia's oil production facilities and is connected by a 16-mile causeway to Bahrain, where Riyadh sent troops earlier this year to help the fellow-Sunni government crush mainly Shi'ite protests.
Saudi Shi'ites complain of systematic discrimination, which the authorities deny. King Abdullah has appointed several Shi'ites to advisory government bodies.
BULLETS
Saif, the activist, said that a 19-year-old technical college student died on Sunday, killed by what police had told his family was a stray bullet fired during a clash between security forces and unknown assailants.
The ministry statement, however, said that "On Sunday night the police found one person dead in a construction site after he was involved with others in shooting at policemen trying to investigate burning car tyres at the side of a major street opposite a police checkpoint."
Saif said that on Monday, a girl was shot and killed and a young man, believed to be aged 24, was shot dead during a march in al-Qatif. Both were killed accidentally by police bullets, he said.
The ministry said that in addition to the two people it said had died, two were in hospital - one person in a "serious condition" and one, a woman, with a bullet wound that was "not life threatening".
"Opening fire is a big mistake, especially as we approach Ashura," Saif said, referring to the holiday when Shi'ite Muslims mark the anniversary of the slaying of Prophet Mohammad's grandson, Imam Hussein, in 680.
This year Ashura falls in early December.
Saif said that unlike provincial police, who had always held back from opening fire even during protest marches, the riot police deployed in the province earlier this year had fired in the air more frequently.
He said he hoped that a government investigation would calm tensions. "We expect this committee to work in a neutral way, to calm tensions. I hope it will calm spirits," he added.
Another activist, Mohammed al-Saeedi, said in a statement sent by email to Reuters that security forces opened fire on protests in al-Qatif and the nearby town of Awamiya on Monday, shooting dead one person and wounding 7. Eight other people were injured, but not by gunfire, he said.
In separate incidents, a police vehicle ran over and injured a man in al-Qatif, and earlier this week a young man was shot and critically wounded in Awamiya, Saif said.
FOREIGN POWER
In early October the Interior Ministry said an unnamed foreign power, widely thought to mean Iran, had instigated an attack on a police station in Eastern Province in which 14 people, including 11 members of the security forces, were injured.
Saudi officials say there are nearly one million Shi'ites out of a population of 3.4 million in Eastern Province, but an International Crisis Group report from 2005 said they number around 2 million and a 2008 U.S. diplomatic cable released by WikiLeaks said there are 1.5 million Shi'ites in the province.
Shi'ites say they face discrimination in education and government jobs and are spoken of disparagingly in text books and by some Sunni officials and state-funded clerics.
They complain of restrictions on setting up places of worship and marking Shi'ite holidays, and say that al-Qatif and the town of al-Ahsa receive less state funding than Sunni communities of equivalent size.
The Saudi government denies charges of discrimination.
King Abdullah has appointed three Shi'ites to the advisory Shura council and included Shi'ite leaders in "national dialogue" meetings where officials hear from representatives of different groups in society. (Reporting by Sami Aboudi; Editing by Tim Pearce)
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